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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES

Note 14—INCOME TAXES

Income tax expense for the years ended December 31, 2023, 2022 and 2021 consists of the following:

             
   Year ended December 31 
(Dollars in thousands)  2023   2022   2021 
Current               
Federal  $2,937   $3,429   $3,653 
State   627    735    749 
Total Current   3,564    4,164    4,402 
Deferred               
Federal   (327)   (323)   (167)
State   (40)   (43)   (53)
Total Deferred   (367)   (366)   (220)
Income tax expense  $3,197   $3,798   $4,182 

 

Reconciliation from expected federal tax expense to effective income tax expense for the periods indicated are as follows:  

             
   Year ended December 31 
(Dollars in thousands)  2023   2022   2021 
Expected federal income tax expense  $3,159   $3,866   $4,126 
State income tax net of federal benefit   464    547    550 
Tax exempt interest   (275)   (404)   (396)
Increase in cash surrender value life insurance   (176)   (151)   (146)
Valuation allowance   93    27    32 
Life Insurance Proceeds   (19)    —    — 
Excess tax benefit of stock compensation   —   (5)   (11)
Other   (49)   (82)   27 
Total  $3,197   $3,798   $4,182 

Note 14—INCOME TAXES (Continued)

The following is a summary of the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities:

         
   December 31, 
(Dollars in thousands)  2023   2022 
Assets:          
Allowance for credit losses  $2,646   $2,464 
Unfunded Commitments   129    — 
Excess tax basis of deductible intangible assets   38    60 
Net operating loss carry forward   933    840 
Excess tax basis of assets acquired   —    18 
Unrealized losses on available-for-sale securities   4,406    5,169 
Unrealized losses on held-to-maturity securities   2,939    3,291 
Compensation expense deferred for tax purposes   1,448    1,348 
Deferred loss on other-than-temporary-impairment charges   5    5 
FASB 91 - Origination Income & Costs   473    405 
Other Real Estate Owned   229    231 
Other   145    299 
Total deferred tax asset   13,391    14,130 
Valuation reserve   1,009    916 
Total deferred tax asset net of valuation reserve   12,382    13,214 
Liabilities:          
Tax depreciation in excess of book depreciation   445    619 
Excess financial reporting basis of assets acquired   919    938 
Unrealized gain on available-for-sale securities   —    — 
Total deferred tax liabilities   1,364    1,557 
Net deferred tax asset / (liability) recognized  $11,018   $11,657 

 

At December 31, 2023 the Company has approximately $23.6 million in State net operating losses. A valuation allowance is established to fully offset the deferred tax asset related to these net operating losses of the holding company. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Additional amounts of these deferred tax assets considered to be realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. The net deferred asset is included in other assets on the consolidated balance sheets.

 

A portion of the change in the net deferred tax asset relates to unrealized gains/losses on securities available-for-sale and held-to-maturity. The tax benefit related to the change of $1.6 million has been recorded directly to accumulated other comprehensive income within shareholders’ equity. The balance in the change in net deferred tax asset results from the current period deferred tax benefit of $367 thousand. At December 31, 2023, the Company had no federal net operating loss carryforward.

Tax returns for 2020 and subsequent years are subject to examination by taxing authorities.

As of December 31, 2023, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.